The long-term chances of innovations in the Auto industry

The worldwide megatrends in politics, societies, economies and technology define the requirements that future cars will have to fulfill – and these will affect almost every aspect of the automobile. Here I talk about two of these megatrends, and how I believe these will pan-out  in the years to come

1.   Cars for an aging population

In the majority of markets, the average new-car buyer is 40 years old. By 2015, that age is expected to increase by four years. Developing cars for this target group does not mean building “old-age cars.” It means equipping cars with design and handling features that the target group will find useful, exciting and desirable – without sacrificing the model’s overall statement. A car designed for an older target group might feature:

·       Ergonomically designed boarding, loading and seating solutions

·       Visual aids for better night and rain vision

·       Easy-to-use functions even for complicated devices

·       Timeless design features

·       Speed and special attention recommendation displays

·       Side and rear-view cameras

·       Customized mobility services

2.   New cars for megacities

In 2015, 40 percent of the world population will live in cities with more than one million residents, 17 percent will live in megacities with more than five million residents. The cruising speed in these cities will average not more than six miles per hour while the typical driver will use his or her car three hours a day. Car design for this environment will take a very different approach from that of current vehicles. Some new focal points will be:

·       Easy switching between relaxation and driving positions

·       Emphasis on passenger entertainment and information systems

·       Automation of stop-and-go traffic situations

·       Concealment of passengers from outside viewers

·       Protection of passengers from attacks

·       Effective smog protection and air conditioning

·       Nearly zero emissions

Implementation

Now we look at how firms can take advantage of these trends and thereby implement strategies to take advantage of these trends

Individual companies should analyze these trends with a focus on their specific product range and aims. Analyzing the direction and speed of market changes, and anticipating future customer needs will shift the focus of the entire organization: Long-term corporate targets become clearer and far more important, and the innovation focus widens from incremental improvements to system innovations.

Recognize technology chances and manage the risks

A closer look at R&D spending by both OEMs and suppliers shows that around 40 percent of all investments go into innovations that never make it into the car or are never produced in sufficient numbers due to a lack of market acceptance. Of the remaining 60 percent, 20 percent is for necessary serial development. Another 20 percent is for innovations that fulfill legal requirements but do not add to a product’s distinctiveness. Usually, these innovations do not pay off either. That leaves only a small remainder of 20 percent that represents profitable innovation investment. And more and more technologies are fiercely fighting over this sweet spot.

Only around ten percent of the automotive technologies under development at the moment have the potential to become blockbuster innovations. These technologies combine the two most relevant categories: The first category, market potential, consists of functional purpose, customer acceptance, regulation compliance and price level. The other category, a high degree of innovation, creates technological differentiation in the market, better intellectual property protection, high margins and a long harvest period.

However, blockbuster technologies come at a high risk. The bigger the innovation step, the higher the development risks. And market potential is a moving target. Take the fuel cell. It certainly is highly innovative compared with existing power-train concepts. But it has a very low market potential at the moment, given its still questionable road capability, uncertain price position and dependence on special fuels. However, this situation could change with time and turn the fuel cell into a true blockbuster.

Automotive companies must increasingly focus their innovation efforts on a very  limited number of promising projects. In order not to place their bets blindly, they have to carefully assess the potential and risks of the technologies they want to explore and regularly reassess them.